The Delaware Supreme Court upheld the constitutionality of an overhaul of state law that governs most major US corporations and was fueled by Elon Musk, handing a win to company founders, insiders and private equity owners who sought less restrictive business rules.
In a ruling Friday, the court concluded that controversial changes to the law had complied with the state’s constitution and didn’t strip power from Delaware Chancery Court — the nation’s premier business-litigation venue — to grant relief if companies breach their fiduciary duty.
The changes represent “a legitimate exercise of the General Assembly’s authority to enact substantive law that, in its legislative judgment, serves the interests of the citizens of our state,” the state’s highest court said in its 37-page ruling.
Pressure had been mounting on the state since a Chancery judge tossed a multi-billion dollar Tesla Inc. pay deal for Musk challenged by a single Tesla shareholder. The billionaire then moved the company to Texas and urged others to do the same, saying Delaware’s business rules were too restrictive. But in December, the state supreme court reinstated Musk’s pay plan.
Musk “left and attempted to take everyone else with him,” a spokesperson for Governor Matt Meyer said. “This law and these efforts made sure companies stayed and did not follow.”
Dependent on Fees
Delaware is highly dependent on fees from companies incorporated in the state, and criticism from the world’s richest man sparked fears of a corporate exodus. While that hasn’t occurred, several prominent companies have left, including Coinbase Global Inc., Dropbox Inc. and Tripadvisor Inc.
Such departures, along with lobbying by the private equity industry, helped fuel political support for reforms, including from Meyer, a Democrat. In March 2025, the state legislature adopted changes that included limiting the ability of minority shareholders to bring certain legal claims.
Governor Meyer’s office touted statistics that show the number of incorporated entities in the state grew to 2.2 million last year from 2.1 million in 2024. “The Delaware franchise remains strong because of our state’s commitment to providing clear and predictable corporate governance rules and our ability to sustain a business-friendly environment,” Meyer said in a statement after the ruling.
The Delaware Supreme Court got involved when the constitutionality of the law was questioned in a May lawsuit filed against Clearway Energy Group LLC, a joint venture operated by TotalEnergies SE and an infrastructure investing business now owned by BlackRock Inc. A shareholder of Clearway Energy Inc. claimed the company overpaid for a wind project in Idaho in a conflicted deal with its majority stockholder, CEG. The deal closed in April 2024, long before the changes to the law. Clearway has argued in court records that the deal price and process were fair.
‘Dual Fiduciaries’
The Clearway investor alleged the $117 million deal was unfair because a majority of directors who signed off are “dual fiduciaries,” where they either work for CEG or the owners of the joint venture. The deal also wasn’t approved by a majority of minority shareholders, which should subject it to greater scrutiny in court, according to the complaint.
Attorneys for the shareholder argued changes to the Delaware law shouldn’t apply to their case because the conduct occurred before the legislation passed. They also said the corporate law overhaul was unconstitutional because it takes away the ability of Delaware Chancery Court judges to award “equitable relief” or “damages” in certain breach of fiduciary duty cases involving controlling stockholder deals.
Clearway Energy argued that since the deal was approved by a committee of “disinterested directors,” in “good faith” and “without gross negligence” it should be protected from scrutiny based on the recent legislative changes. The company’s lawyers also argued the corporate law overhaul was constitutional because it didn’t “extinguish fiduciary duty claims,” but “prescribes the framework for adjudicating them.”
Kevin Malcarney, Clearway Energy’s general counsel, said in a statement Friday that the decision to uphold the state’s new law “furthers our resolve to vigorously defend against the underlying claims in the Delaware Court of Chancery.”
Greg Varallo, a lawyer for the Clearway investor who sued, said, “Although we are disappointed by the outcome, we thank the court for its hard work and guidance on this matter.”
The case is Thomas Drew Rutledge v. Clearway Energy Group LLC, 248,2025, Delaware Supreme Court.
Photo: Elon Musk
Copyright 2026 Bloomberg.
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